Fund-starved infrastructure firms look at masala bond option to raise funds overseas

Some of India's fund-starved and debt-laden companies in the infrastructure sector such as NTPC and private sector GMR are looking at the `masala bond' option to raise funds overseas as credit flow from local banks dry up, reports quoting merchant banking sources said.

India Infrastructure Finance Co Ltd, Indian Railway Finance Corporation, the financing arm of the railways and India's oldest mortgage lender Housing Development Finance Corporation Ltd (HDFC) are all looking to float this rupee-denominated and dollar-settled debt instruments, say reports.

HDFC is planning to raise $750 million worth of rupee bonds, and is reported to be looking to enter market in the first half of December.

Banks are reluctant to lend to sectors facing weak demand and heavy debt and the government has clarified that the rupee-denominated offshore bonds would be taxed, but these companies need funds at a time when projects are half-way through and debt has piled up.

Indian companies have raised Rs210,000 crore ($31.7 billion) via rupee bonds in the local market so far this year, up from Rs190,000 in the same period last year, according to Reuters data.

A Reuters report quoting investment bankers said GMR Infrastructure with a net debt of $6.3 billion as of end-September could be one of the first to launch a masala bond.

Steel and power major JSW Group is also exploring a masala bond for capital raising, the report said.

The companies propose to use the proceeds from the overseas rupee bonds to refinance costly loans or raise capital for new projects. These will also involve no currency risk, but will involve payment of 0.50 per cent in withholding tax.

The issue, however, is whether these Indian corporations, covered by a country rating of minus BBB, the lowest investment grade, be able to raise money the way the International Finance Corporation (IFC) first raised Rs1,000 crore through 'masala bonds', listed on the London Stock Exchange.